Contractor Carillion has entered into compulsory liquidation, with its 28,000 defined benefit pension scheme members set to transfer into the Pension Protection Fund, at a cost to the lifeboat of more than £587m.
The company, which holds large government contracts for projects like the HS2 railway line, had held last-minute talks with lenders and the Cabinet Office but was unable to reach an agreement.
Its DB liabilities, which are spread between 13 schemes, will be among the largest ever absorbed by the PPF.
The company announced a £587m accounting deficit in September last year.
Its s179 deficit, the cost of securing PPF-level benefits, will be greater than this if all the schemes transfer to the lifeboat, and has been estimated at around £800m by independent pensions expert John Ralfe. However, it is not expected to threaten the lifeboat, which currently has a surplus of £6.1bn.
Philip Green, chair of Carillion, said: "In recent days... we have been unable to secure the funding to support our business plan and it is therefore with the deepest regret that we have arrived at this decision. We understand that HM government will be providing the necessary funding required by the Official Receiver to maintain the public services carried on by Carillion staff, subcontractors and suppliers."
Nicola Parish, executive director at the Pensions Regulator, said it was too early to speculate on what outcome may befall the members of Carillion's pension schemes.
Members are guaranteed 90 per cent of their benefits – subject to a cap and minimum increases – by the PPF, but could theoretically receive more if the scheme is able to claim assets in the liquidation process.
Parish said: “We continue to work closely with all relevant parties in what are very challenging circumstances, including the pension scheme trustees, the official receiver and the government, to help achieve the best possible outcome for members of the pension schemes and those impacted by the situation."
A spokesperson from the PPF said: “We can confirm that we have been notified that some of the Carillion group’s companies have gone into liquidation and we know this news will raise serious concerns for their employees. We want to reassure members of Carillion’s defined benefit pension schemes that their benefits continue to be protected by the PPF and will continue to be protected if or when their scheme enters the PPF assessment period.”
